The SECURE Act
About the author: Chris Abts is the President & founder of Cornerstone based in Reno, NV. He helps people to better manage their wealth so they can focus more of their time on what truly brings meaning and fulfillment to their life. Abts is also the TV show host of Redefining Retirement, which airs every Sunday evening at 5:30pm on KTVN Channel 2. Chris has passed the Series 65 examination, earned the Certified Estate Planner (CEP) and Chartered Retirement Planning Counselor (CRPC) professional designations.
THE SECURE ACT
The US House of Representatives passed The Setting Every Community Up for Retirement Enhancement (SECURE) Act. While the Secure Act’s intended goal is to make your retirement more secure, the question many people are asking is, “what exactly will be different”? Allow me to explain.
1. If you are still working, this Act requires that your 401(k) provider include annuities as investment options inside your retirement plan at work. The insurance companies that lobbied for this bill had congress require that advertising be included in your 401(k) information documents. Now while I do believe that an annuity can be an appropriate solution for retirees looking for stable income in retirement, I have rarely seen them to be an appropriate investment strategy for those still working. In addition, I am concerned that many of the annuities that will be offered in 401(k) plans will have significant fess and unnecessary riders that could eat away at your savings.
2. If passed by the Senate, this act will defer the beginning age for required minimum distributions from age 70½ to age 72. While I believe this is well-meaning, and may be of benefit to some retirees, delaying the start of required distributions only delays the inevitable. It may also result in larger required minimum distributions which could increase your tax liability in retirement. Since taxes are scheduled to increase on January 1, 2026, it most likely does not make financial sense for most retirees to defer taxes into the future.
3. In its current form, this act will mandate that all inherited IRAs must be completely distributed within ten years after the death of the IRA owner. Currently, the law allows your children and even your grandchildren, to “stretch” those IRA distributions over their entire lifetime. “Stretching” the distributions over a longer period of time reduces the tax liability on those distributions, which is a significant tax benefit for the heirs. As a result, due to the fact that all funds inside the IRA must be distributed within ten years of death of the IRA owner, the government stands to receive a larger share of the IRA.
While the SECURE Act has not passed the Senate yet, it is probably safe to assume that some form of this bill will ultimately pass. We will continue to monitor and keep you updated when and if it becomes law. We will also be working with tax and legal experts to determine how it may impact your retirement and tax planning. As for now, I would encourage you to work with your financial advisor and your tax professional to make sure your IRA withdrawal strategy benefits you and your family, and not the IRS.